It's easy to base real estate investment on the premise that location is everything. However, what makes a location desirable? It all depends on infrastructure―how people and goods move within and beyond a city.
Cities with a robust public transit infrastructure can attract more employees and consumers to work in and use their commercial properties. In addition, it encourages urban homebuilding, which contributes to commercial property values. The result is that residents will either spend money in the businesses around them or choose to work at those businesses or live in the surrounding neighborhood―which increases the city's commercial and economic value.
However, Ontario has struggled with congestion for too long, which somehow tolled on the city's overall commercial as well as economic value. With thousands of wasted hours spent on crowded trains or stuck behind the wheel in bumper-to-bumper traffic, residents were getting tired of the city's infrastructure. Things need to change. So, keeping all that in mind, Doug Ford's newly re-elected Progressive Conservatives have recently committed to building more highways, bridges, and public transit in Ontario.
PCs commitment to spend $86.6 billion on public transit improvements
The recently released Ontario budget reiterated the provinces’ major plans for infrastructure development. During Doug Ford's campaign, he announced the PC government would invest $86.6 billion in roads, highways, and public transit in Ontario over the next 10 years.
Modeling from the Ministry of Transportation indicates that, without more transportation infrastructure, travel times on the main stretch of Highway 401 will double by 2051, with travel times taking 90 minutes longer along the 401 through the Greater Toronto and Hamilton Area (GTHA).
Based on the same model, every 400-series highway in the GTHA, including Highway 407, will be at or above capacity within the next decade.
The PC government plans include the following projects that are crucial to the province's future success:
Capital investments of $61.6 billion over 10 years for public transit, including extending GO rail service to London and Bowmanville.
In addition to creating transit-oriented communities across Ontario within walking distance of transit lines and increasing PRESTO discount programs open to postsecondary students, the government plans to eliminate double fares on local transit when using the GO.
Constructing subways, including the Eglinton Crosstown West Extension and the Sheppard Subway Extension.
A $75 million investment to support passenger rail service in Northeastern Ontario.
Capital investment of $21.5 billion over a ten-year period to build, repair, and improve highways, including Highway 413, the Bradford Bypass, the QEW Garden City Skyway, and bridge replacements in Oshawa and Port Hope, and Highway 401 and Highway 7 between Kitchener and Guelph.
By 2022-23, the province will invest $492.7 million in targeted infrastructure highway projects in Northern Ontario, as well as the reconstruction of Highway 101.
Disposing of tolls levied on Highways 412 and 418.
Under the policy premise of transit-oriented communities, the government's investment in public transit is supported by broader policy frameworks emphasizing the importance of coordinated transit and community development; this propensity to relieve some of the red tape surrounding new development will surely open up more opportunities for commercial real estate developers in the city.
How does the investment impact CRE developers and investors?
The real estate market benefits from major public transit projects. Real estate value tends to increase in areas served by quality transit and the development of new areas creates more opportunities outside of what's already available. As property values rise, property taxes will increase, strengthening the case for tax increment financing (TIF). In Ontario, house prices have increased 72% since Doug Ford, and the Progressive Conservatives took office in 2018, boosting the economy and turning many people into paper millionaires.
At this time, Ford is committed to investing $86.6 billion in transit improvements which has again boosted the potential for increased returns on real estate investments.
David Horowitz, Senior Vice President of PCG, applauds the move…"Anything that gets cars off the roads in the GTA is an advantage for both commuters and businesses and these improvements will only serve to increase real estate values in the areas surrounding."
The Real Estate Intelligence Network (REIN) recently released the Toronto Transportation Effect Report, which discusses how to benefit from transit infrastructure projects and how it affects real estate.
The report co-authored by Jennifer Hunt, REIN's vice president, estimates that transport infrastructure contributes 10-20% to property values within 800 meters of rail or highway access. According to the report, the value of multifamily properties increases between 27 and 99% if they are within 1,600 meters of each other.
If they are located within 500 meters of a rapid transit station, commercial properties will gain 28% value and 34% fewer vacancies. However, in a normal scenario, access to transit—LRTs, subways, commuter rails, and highways results in higher property values and rents.
The report also offers investors a few cautions about investing near transit. In general, there are four phases to be aware of: the first pertains to the project in its inception phase; the second pertains to construction that has not yet begun; the third refers to planned, but unfunded projects; and the fourth pertains to projects that are in their inception phase, meaning they are nearly finished.
Depending on the tier, property valuations will differ.
According to the report, in the minutes following an announcement of a new project, the property's value increases by 20%. Traffic and noise from construction cause the value to plummet during the construction phase. As soon as the project is operational, values begin to fall again.
Some studies indicate the full impact takes a year or two to become evident. Because investments near transit projects need to be handled delicately, Hunt stresses the importance of being mindful of the political landscape.
The Ontario government's investment in public transit is a big win for Toronto. The province's $28 billion commitment to infrastructure projects will go towards building the Eglinton Crosstown LRT, extending the Yonge subway line north to Richmond Hill, and adding capacity to GO transit. This investment is expected to help reduce congestion on Toronto's roadways, which has been a growing problem for commuters who are fed up with sitting in traffic for the last twenty years or more.
Commuting aside, this represents a major boost for Toronto CRE, as it means that the city will have a greater capacity to handle both new residents and increased business activity. It could be a boon for developers looking to capitalize on the city's post-recession recovery. As people return to work and immigration levels pick up, there will be an increased demand for housing in downtown Toronto—and where better for developers to meet that demand than in close proximity to quality and convenient public transit options.
Reach out to PCG with any questions around how best to select a site for development in the GTA.